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InterContinental Hotels Earnings: Demand Still Traveling Higher, While Economic Pressures Lurk

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InterContinental Hotels Group PLC

We plan to increase our $73 fair value estimate for InterContinental Hotels Group IHG by around $1 per share as we lift our 2023 forecast for revenue per available room to around 16% from 13% to account for stronger second-half sales. But while we have been steadfast on travel demand resiliency since the summer of 2020, we expect InterContinental’s revPAR growth to decelerate to about 2% in 2024, driven by mounting headwinds of lasting inflation and depleted consumer savings. With the shares trading near our planned upward revision, we believe investors can wait for a more attractive entry point.

Third-quarter revPAR was strong, at 113% of 2019′s level versus 110% last quarter, as the desire to travel remained resilient across the hotel industry. RevPAR was up 10.5% from last year, with room rates up 4% (reaching 115% of prepandemic marks) and an occupancy rate improving 4 percentage points to 72% (99%). All types of travel improved, with leisure sales up 3% (to 122% of 2019′s level), business up 6% (103%), and group up 16% (98%). Each key region reported revPAR growth, led by Greater China’s 43% lift, which equated to 109% of 2019′s level (101% year to date). Despite economic concerns in China, we think revPAR there can increase by a high-single-digit percentage in 2024 for the hotelier, as the area’s revPAR is just now back to prepandemic amounts on a year-to-date basis versus the low-double-digit improvement seen in the company’s other regions, and as the country’s air capacity increases from its current 45% of 2019′s level, allowing for more international travel.

Net unit growth was 4.7% (2.9% organic), with increases across all key regions and conversions representing 40% of total room openings. This signals to us that InterContinental’s narrow-moat brand is resonating with owners.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Dan Wasiolek

Senior Equity Analyst
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Dan Wasiolek is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers gaming, lodging, and online travel.

Before joining Morningstar in 2014, Wasiolek spent 16 years as an analyst and portfolio manager covering U.S. mid- and large-cap strategies for Driehaus Capital Management.

Wasiolek holds a bachelor’s degree in business administration from Illinois Wesleyan University and a master’s degree in business administration, with a concentration in finance, from the DePaul University Kellstadt School of Business.

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